U.S. industrial output jumps in June at fastest rate in eleven months

An employee installs a window onto a truck on the assembly line at the Mack Truck Inc. plant in Macungie, Pennsylvania

WASHINGTON (MarketWatch) — Industrial production in June grew at the fastest monthly rate in eleven months, on the back of strong auto and utility output, but analysts said the sector was still likely to face headwinds in coming months.

The Federal Reserve said Friday that industrial production grew 0.6% in June, topping the MarketWatch-compiled economist consensus for 0.5% growth. This is the fastest growth since last July.

In addition, May’s decline was revised to a 0.3% fall from an initially reported 0.4% drop.

The dollar has increased nearly 20% on a broad trade-weighted basis since 2014, Wang said. It is now a few percentage points below its peak in January. Since the Brexit referendum on June 23, the dollar has risen sharply against the British pound and the euro.

“The bulk of manufacturing faces the same problems today that it faced a year ago—too much inventory in the system at home and too strong of a dollar to not face significant drag from higher import shares and lower export shares in the world market,” said Michael Montgomery, U.S. economist at IHS Global Insight, in a note to clients.

“Core manufacturing, that segment that excludes both vehicles and high technology, has gone nowhere officially for three straight months, and virtually nowhere for the past year, with June 2016 down 0.3% from last June. That means it takes a microscope to find any movement over the past year other than noise, and the prognosis for the next year is that it will take at least a magnifying glass to find any movement,” he added.

In June, manufacturing output grew 0.4% after a 0.3% decline in the prior month. The gain was due to a surge in automotive production, which leapt 5.9% after a 4.3% nosedive in May. Excluding autos, manufacturing was flat.

Wang of HSBC noted that auto sales were softer-than-expected in June, suggesting that production will decelerate in the third quarter.

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